EU funds 'to pay for bank closures'

THE powerful German member of the executive committee that runs the European Central Bank (ECB) has said that in future the eurozone bailout funds should cover the cost of closing failed banks as well as providing rescue capital to struggling lenders.

The ECB's Joerg Asmussen said that once a new banking supervisor is in place, a Europe-wide "resolution mechanism" for closing banks "would have the legal and financial capacity, as well as the independence, to ensure that viable banks survive and non-viable banks are closed down".

The comments, made in a speech in Frankfurt, mark a radical departure from Europe's insistence four years ago that Ireland had to take on the €30bn cost of closing Anglo Irish Bank alone.

The Department of Finance was tight-lipped yesterday on whether the latest shift by Germany's bank chief will help efforts to renegotiate the Anglo Irish Bank promissory note.

European rescue funds should be available to save banks, but the first port of call in any rescue should be a bank's home country, he said.

Rescue costs should "first and foremost be covered by the private sector" through a levy on banks, he said.

The national governments should be called on next, with Europe only coming in if those two sources prove insufficient, he said.

The new banking authority is due to be in place in March 2014 and will be part of the ECB.

Meanwhile, the European Financial Stability Fund (EFSF) said it needs to raise €5.6bn for Ireland next year as part of an overall target to raise €58bn on the bond markets.

The EFSF needs the cash to make rescue loans to Ireland and other countries under bailout terms.

Ireland has already received 80pc of the rescue loans due under the EU/IMF bailout deal.

Under the bailout agreement, 2013 will be the final year when the Government draws down new rescue loans.

After that, the plan is for the country to be able to finance itself on the markets.